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Dallas, Texas-based Southwest Airlines Co. (LUV - Analyst Report) posted a drop in traffic for Aug 2013. The company’s traffic – measured in revenue passenger miles (RPMs) – was 9.17 billion for the reported month, down 2.0% from 9.35 billion recorded in the comparable month a year ago. On a year-over-year basis, consolidated capacity (or available seat miles/ASMs) moved up 1.4% to 11.27 billion. The load factor or percentage of seats filled by passengers dropped to 81.3% from 84.2% in Aug 2012.

For the first eight months of this year, Southwest generated RPMs of 70.83 billion (up 0.8% year over year) and ASMs of 88.25 billion (up 1.6% year over year). Load factor was 80.3%, reflecting a year-over-year decline of 60 basis points.

Southwest focuses on a number of initiatives to increase revenues and reduce operational costs over the next three years. With its cost-efficient business model, the company targets to expand its network through the integration of AirTran aircraft and the addition of new domestic and international destinations.

To combat further cost escalations, Southwest is rightsizing its fleet. During the first half of 2013, the airline took delivery of nine The Boeing Company’s (BA - Analyst Report) 737-800s, two used Boeing 737-700 and retired three Boeing 737-300s.  

However, fuel price instability remains one of the major risks for the company as the cost of fuel is largely unpredictable. Furthermore, Southwest continues to implement substantial technological changes within its operating systems, which could affect its earnings in case of any system failure or disruption.

The U.S. low-cost carrier reported second quarter 2013 adjusted earnings of 38 cents per share, a penny short of the Zacks Consensus Estimate, while revenues of $4.6 billion were in line with the Zacks Consensus Estimate.

Southwest – which operates along with other prominent passenger carriers such as United Continental Holdings Inc. (UAL - Analyst Report) and JetBlue Airways Corporation (JBLU - Analyst Report) – currently holds a Zacks Rank #3 (Hold) rating.

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